Geithner defends housing response

Timothy Geithner on Monday defended the Obama administration’s efforts to help homeowners in the aftermath of the financial crisis, saying “we tried to do as good a job as we could with our limited authority.”

Speaking at POLITICO’s Playbook Lunch in downtown Washington, the former Treasury secretary said President Barack Obama and his top aides were above all else focused on preventing the collapse and failure of the financial system.

“In that context, the only way to protect people from massive unemployment is to step in and try to make sure you prevent the collapse and failure of the financial system,” Geithner said. “That’s the essential, necessary, moral thing to do in that context. Nothing’s possible if you don’t do that.”

Boosting the flailing housing market was “terribly hard” — in part because the tools, resources and authority at the administration’s disposal were so limited — and the results were “terribly disappointing, Geithner noted.

“Nothing we did in housing had as much traction as much benefit as much power as people deserved in this context,” he said. “Why was that? It’s because the scale of the problem was just massive relative to the tools and the authority and the resources that we had.”

Still, Geithner maintained that the president’s decisions helped millions of people stay in their homes, refinance their mortgages and stabilize home prices.

Geithner’s take on how the Obama administration tried to address the foreclosure crisis in his new book, “Stress Test: Reflections on Financial Crises,” has reignited a tense debate over the issue.

Critics of the administration’s housing programs argue more could have been done and that, for instance, the administration was not aggressive enough in pushing Congress to enact so-called cram-down legislation that would have allowed some mortgage debt to be forgiven during bankruptcy.

Treasury launched the administration’s main effort to help homeowners, the Home Affordable Modification Program (HAMP), in March 2009. The program helped struggling borrowers lower their interest rates and monthly payments. Under the plan, banks were paid from the 2008 bank bailout law to offset some of the costs of modifying the loans.

But banks were criticized for reaching out too slowly to struggling borrowers and Treasury has been criticized for not more aggressively enforcing some of the rules that the banks agreed to follow.

The program has fallen short of the administration’s goals.

Obama administration officials had originally said that between 3 million to 4 million homeowners would be helped by the program, but only roughly 1.3 million borrowers have received permanent modifications under HAMP as of March, according to the latest program data.

HAMP has been expanded several times with new programs and incentives put in place to broaden the availability of help. In 2012, Treasury began offering banks more money to forgive some mortgage debt for borrowers.

Geithner’s book, “Stress Test,” was released last week. The memoir details his role in the government’s response to the 2008 financial crisis first as president of the Federal Reserve Bank of New York and then as President Barack Obama’s Treasury secretary.

Geithner, who left the administration in early 2013, takes a defensive tone about the Obama administration’s response to the economic meltdown. He makes the case that Obama’s first-term decisions helped prevent the onset of another Great Depression and that criticism from the left did not take into full account just how constrained Obama and his top aides were as they tried to take decisive action.

After leaving the Treasury, Geithner joined the private equity firm Warburg Pincus earlier this year as president and managing director.

At the Playbook event, Geithner also responded to criticism that the administration’s efforts to dig the country out of the crisis helped Wall Street more than Main Street Americans.

“It was messy. It wasn’t perfect,” he said, adding that it was impossible for the administration to avoid the allegation that they were helping the very wrongdoers that helped bring on the crisis.

“Paradoxically, in a panic, to rescue people from the risk of massive unemployment, you’re going to be doing things that looks like you’re helping the arsonist. It is just inescapable,” he said. “And it feels terrible and we hated doing it. But the alternative would have been much more unfair to the innocent victims of the crisis.”

Geithner also clarified a passage in his book where he talks about disagreements he had with Larry Summers, the former Treasury secretary and then-director of the National Economic Council, over potentially nationalizing some of the country’s biggest banks.

“I don’t think its quite fair to say…that Larry was a big proponent of nationalization,” he said. “Larry was excellent at looking at every option, looking at every choice from all sides, sometimes kind of frustrating but necessary and good and good for a president who is curious and exacting. He thought we should look at all those options and we did.”

In the end, the government released the results of stress tests that led to the market putting up additional capital, avoiding additional taxpayer support.

“We thought through a lot about how we were going to do that if we faced that issue, but it was sort of a hypothetical dscussion at that point because we were at that point waiting for the results,” he said.